Methods To Achieve Minimum Public Shareholding

1. Public Issue: Issue of shares to the public through a prospectus.
2. Offer for Sale (OFS) via Prospectus: Promoters offering their shares to the public through prospectus.
3. OFS via Stock Exchange Mechanism:The procedure has been described below

Eligibility:

(a) Exchanges: BSE, NSE, and MSEI.

(b) Sellers:

– All promoter(s) or promoter group entities of such companies that are eligible for trading and are required to increase public shareholding to meet the minimum public shareholding requirements.

– OFS mechanism shall also be available to companies with market capitalization of INR 1,000 Cr. and above

– The ₹1,000 Cr threshold is calculated as the average daily market cap over the previous 6 months before the OFS month and any promoter/promoter group entity or non-promoter shareholder of such companies can use the OFS route.

– Promoters/promoter group can also buy shares in the OFS, subject to the compliance with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and Regulation 38 of LODR Regulations, 2015, in case non-promoter offer shares through OFS.

– Promoters of eligible companies are allowed to sell shares to employees of the company within 2 weeks after the OFS transaction.

– This post-OFS sale to employees will be considered part of the same OFS transaction.

(c) Buyers:

– All investors registered with brokers of BSE, NSE, and MSEI can buy shares, except Promoters or promoter group entities (if they are the sellers).

– However, If the OFS is conducted by a non-promoter shareholder, then Promoters/promoter group entities are allowed to buy only if they comply with SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and Regulation 38 of SEBI (LODR) Regulations, 2015.

Cooling-off Period: The cooling period for promoter, promoter group entity and non-promoter shareholders for offering the shares(i.e. purchase or sale prior to and after the offer) through OFS mechanism is based on liquidity:

• Most liquid shares: 2 weeks
• Liquid: 4 weeks
• Illiquid: 12 weeks.
• Regardless of the general cooling-off period, if a company’s shares are liquid or illiquid, Promoters or promoter group entities can only sell shares through:

(a) Offer for Sale (OFS) or

(b) Qualified Institutional Placement (QIP).

(c) There must be a minimum 2-week gap between any two such successive offers.

• If an OFS is under-subscribed and the company’s shares are liquid or illiquid, and the OFS was conducted to meet Minimum Public Shareholding (MPS) requirements, then:

(a) Promoters or promoter group entities may sell the unsubscribed portion of shares in the open market (i.e., outside OFS)

(b) Only for MPS compliance, and

(c) Only after a 2-week gap from the closure of the original OFS,

(d) Provided all other SEBI rules and conditions are followed.

Offer Size:

• Minimum offer size is Rs. 25 crore and can be lower if used for achieving MPS in a single tranche.

Advertisement:

• Advertisements, if issued, must be made only after the OFS notice is submitted to the stock exchange.
• The content of the advertisement must be strictly limited to what is included in the OFS notice.
• All costs related to conducting the OFS (e.g., broker fees, advertisements, filings) shall be fully borne by the seller(s).

Operational Requirements:

(a) The seller(s) must appoint one or more brokers to handle the OFS.

(b) These seller’s brokers may also act on behalf of eligible buyers.

• OFS Notice & Timing Requirements:

(a) Timing: The intention to sell must be notified to the stock exchange by 5 PM on T-1 day (a day before the OFS opens). An extension till 6 PM may be granted case-by-case, with reasons recorded.

(b) What Must the Notice Include?

§ Name of the seller(s) and name of the company.

§ Stock exchange(s) where orders will be placed and designation of Designated Stock Exchange (DSE) if there is more than one stock exchanges

§ Date and time of OFS opening and closing.

§ Allocation methodology:

(a) Price priority (multiple clearing prices), or

(b) Proportionate basis (single clearing price).

§ Number of shares offered.

§ Green Shoe Option, if applicable: The maximum number of shares that the seller may choose to sell over and above the offer

§ Name of seller broker(s).

§ Conditions for withdrawal or cancellation, if any.

Floor Price:

– Sellers must disclose Floor price to the stock exchange by 5 PM on T-1 day or by 6 PM, if extension is granted.

– Promoters may offer shares to employees at the price discovered in the OFS Transaction, or at a discount to the discovered price.

– Mandatory Disclosure: If shares are offered to employees, the OFS notice must state:

(a) The number of shares allocated to employees, and

(b) The discount amount, if any

 

Retail Participation:

– Sellers may offer a discount to retail investors, (if disclosed in notice).

– Discounts Can Be Applied through

a) Multiple Clearing Price Method: Retail investors may get discount on the cut-off price, or a discount on their bid price.

b) Single Clearing Price Method: Retail investors will receive shares at a discount to the cut-off price.

c) In Both Methods: The final discounted price for retail investors may be below the floor price.

– Timelines

(a) The duration of the OFS shall be as per the trading hours of the secondary market.

(b) Bidding by non-retail on T day.

(c) Retail bids on T+1 day. The seller shall make appropriate disclosures in this regard in the OFS notice.

Order Placement:

– A dedicated OFS window will be created for placing sale orders.

a) With 100% Upfront Margin paid by Institutional and non-institutional investors such orders can be modified or cancelled anytime during trading hours.

b) Without Upfront Margin:Only for institutional investors. orders cannot be modified or cancelled, except for increasing price or quantity.

– Retail investors can bid in both retail and general (non-retail) categories.However, if their total bid value exceeds ₹2 lakhs, the retail bid becomes ineligible.

– Sellers must allow retail investors to bid at cut-off price in addition to placing price bids, subject to the following condition:

a) Floor price must be disclosed by 5 PM (or 6 PM with extension) on T-1 day.b) Exchanges will calculate retail-eligible quantity based on floor price disclosed by seller.c) No indicative price will be shown for the retail segment.d) Retail can submit either a price bid or a cut-off bid.e) Margins for:

§ Cut-off bids = cut-off price from T Day.

§ Price bids = bid value.

f) If non-retail category is under-subscribed, retail investors can bid at floor price on T+1.g) Sellers can offer discounts to retail on the T+1 cut-off price.h) Retail bids below the cut-off price of T day or floor price will be rejected.i) Unsubscribed shares from one category can be reallocated to the other.

– Cumulative bid quantities (with and without margin) are shown online during trading.

– Indicative price for non-retail bids is disclosed throughout the session.

– Price bands from regular trading do not apply to OFS orders.

– Regular trading in the stock continues during OFS.

– If a market-wide circuit filter is triggered, OFS is halted. Market wide circuit filter referes to the mechanism that halts all trading when key market indices (e.g., Nifty or Sensex) rise or fall beyond a pre-defined limit within a trading day.

– Multiple orders from a single buyer are allowed.

– Bids below floor price are rejected.

– Retail bids below non-retail cut-off or floor price are rejected.

As per amended SEBI (Prohibition of Insider Trading) Regulations, 2015Trading window restrictionsdo not apply to OFS and Rights Entitlement (RE) transactions conducted under SEBI-approved frameworks

Allocation:

– Minimum 25% of the total OFS offer must be reserved for Mutual Funds and Insurance Companies

– Unsubscribed portion from this category is reallocated to other bidders.

– At least 10% of the offer size must be reserved for retail investors.

– The cut-off price is

(a) the lowest price at which the entire offer is sold.

(b) Determined separately for Retail bids (T+1 day) or Non-retail bids (T day).

 

– Once the cut-off price is fixed, shares reserved for retail are:

(a) Allocated to eligible retail bids.

(b) If oversubscribed, allocation is on a proportionate basis.

– To avoid unallocated shares:

(a) Non-retail bidders’ bids can carry over to T+1 day (retail bidding day).

(b) Retail investors can also bid for unsubscribed non-retail shares.

– Unallocated retail shares may be offered to:

(a) Non-retail investors (from T day) who:

• Opted to carry forward their bids to T+1, and
• May revise their bids.

– Allocation happens at the cut-off price or higher as per bids.

– Settlement as per normal secondary market rules.

– At offer close, the DSE aggregates bids and applies the allocation method (price priority or proportionate) as disclosed in OFS notice.

– No single bidder (except mutual funds and insurance companies) can be allocated more than 25% of the OFS size.

– After finalizing the allocation, the DSE must share the details with all exchanges.

– If there’s a default or insufficient demand, the seller can choose to:

(a) Cancel the OFS entirely, or

(b) Conclude the offer with available bids.

• Withdrawal of OFS: allowed before T Day, with 10-day cooling-off.
• Cancellation of offer:

– No Cancellation During Bidding.

– The seller cannot cancel the OFS once bidding has started (i.e., during trading hours).

– If, on T Day, the seller does not receive enough valid bids from non-retail investorsat or above the floor price, then:

(a) The entire OFS (retail + non-retail) can be cancelled after T Day bidding ends.

(b) The seller can choose not to continue with the retail portion on T+1 Day.

– In case of cancellation, the stock exchange must inform the market by disseminating the cancellation details.

Offer shares to Employees through Stock Exchange Mechanism

– Promoters can now offer shares to employees via the stock exchange mechanism.

– This is optional and an addition to the existing offline process.

– The shares shall be mentioned in the OFS notice to the stock exchanges by the promoter(s), in case shares are reserved for employees.

– A separate “Employee” category will be created for bidding on T+1 day.

– Bidding must be done at cut-off price of T day.

– Max bid amount: ₹5 lakhs.

– Guaranteed allotment: up to ₹2 lakhs.

– Remaining (up to ₹5L) allotted proportionally if under-subscribed.

– Allotment based on PAN shared by the company.

– Bids in the Employee category will not be publicly displayed.

• Contract Notes to be issued post-allotment.
• No Settlement Guarantee Fund applies to OFS.
• Rights Issue to Public Shareholders: Promoters must forgo their entitlement.
• Bonus Issue to Public Shareholders: Promoters must forgo their entitlement.
• Qualified Institutions Placement (QIP):As per SEBI (ICDR) Regulations, 2018.
• Promoter Sale in Open Market (Block Deal): There are two permissible ways

(a) Sell up to 2% of total paid-up equity share capital per financial year, limited to five times the average monthly trading volume, until the MPS compliance due date.

(b) Sell up to 5% of paid-up capital in a financial year, in one or multiple tranches (within 12 months), provided the public shareholding reaches 25%. The shares sold should not exceed the trading volume in the preceding 12 months.

Conditions to be met:

– Only one of the above two options may be used.

– Prior announcement (at least one trading day before sale) must include:

(a) Purpose of sale.

(b) Details of selling promoter(s)/group.

(c) Number and percentage of shares to be sold.

(d) Timeline for completion.

(e) Undertaking from promoters not to buy shares on sale dates to Stock Exchange.

(f) Compliance with SEBI regulations on insider trading and takeovers.

8. ESOP Allotment to Employees:

• Up to 2% of paid-up capital.
• Promoters cannot be allotted shares and shall be in compliance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021

9. Transfer to ETF (Exchange Traded Fund):

• • Up to 5% of paid-up capital.
  • Requires prior disclosure and the listed entity must announce the following at least one trading day in advance:
  • Purpose and intent of the transfer.
  • Details of the transferring promoter(s)/group.
  • Number and percentage of shares being transferred.
  • Information about the ETF which are proposed to be transferred.
  • Additionally, the entity must provide an undertaking that the concerned promoters will not subscribe to units of the ETF receiving these shares.

10. Any Other Method Approved by SEBI: Subject to SEBI’s prior approval.